Before anything, familiarizing yourself with the advantages and disadvantages of out of state investment properties will help you decide if this investment strategy is suitable for you or not. Let’s briefly discuss the ups and downs for out of state real estate investing.
Advantages for investment property out of state:
1. Affordability and cheaper investment properties
This advantage for buying investment property out of state speaks for itself. One of the main reasons why property investors choose to invest in out of state properties is because their current market prices are extremely high and real estate investing is no longer affordable. So what should potential real estate investors do in this case? Invest out of state in a cheaper housing market!
Investment property prices tend to correlate with the location, which is why every investor needs to find affordable locations even if they’re in a different area. To help you determine whether or not your local housing market has affordable prices, you need to conduct a real estate market analysis. A real estate market analysis can show if your local housing market does not offer any profitable investment properties for sale right now, based on the prices. You can use Mashvisor’s investment property calculator to help you out.
To analyze the best investment properties in your city and neighborhood of choice and use our investment property calculator, click here.
2. Diversify your portfolio
If you are wondering how to buy investment property out of state, then you definitely want to diversify your real estate investment portfolio. Having investment properties in different locations is a smart investment strategy because if the market in one state collapses, you will have the property in the other state generating profit for you.
3. More profitable real estate market
Another advantage of buying investment properties out of state is having profitable income properties. In the end, every property investor has one goal in mind which is to earn a profit and while buying inexpensive property is great, making a profit should be your ultimate goal.
Out of state rental properties can, at times, be more profitable in terms of return on investment, rental income, cap rate, and cash on cash return than properties within your own state. Property profitability heavily depends on the location. So you need to find places that offer a high return on investment, cash on cash return and cap rate.
Related: What is a Good Cash on Cash Return?
4. Demand for your preferred rental strategy
Which rental strategy do you prefer most? A short-term rental strategy or long-term rental strategy? Whichever is the case, out of state investment properties are great for choosing a location that matches your preferred rental strategy. For example, Airbnb rentals tend to perform better in tourist destinations. Whereas long-term rentals like single-family homes, perform better in suburban areas. That is why it’s best to go after a location that is more suitable for your investment property strategy. If you can’t decide which investment strategy to choose, read: “Top Six Real Estate Investment Strategies”!
Disadvantages for investment property out of state:
1. Far distances
Before you think about how to buy investment property out of state, ask yourself is it worth it. Investing in out of state properties can cost you a lot of gas money and time. The money you waste on far away properties could have been used for properties in your local area. One way to avoid this is to invest in an area that is closer to you. It doesn’t necessarily have to be “out of state” but can be in the same state, just in a different city or town. Also, you should consider hiring professional property management to take care of all the work since you are far away.
2. Hard to deal with tenant problems quickly
Being far away from the property means you can’t deal with a tenant’s problems that happen in sufficient time. Like the previous point, a good way to solve this is hiring a property manager to take care of business.
3. Not so friendly state laws
Every state has its own laws and regulation regarding local housing markets. Before anything, research the area you want to invest in. For example, certain cities have strict regulations for short-term rentals like Airbnb. So read about the legal issues related to your chosen rental strategy before you think about how to buy investment property out of state.
If you are convinced that buying investment property out of state will do you more good than bad, then continue reading as I explain how to buy investment property out of state. There are 3 major steps for how to buy investment property out of state:
- Finding the right market
- Searching for a property
- Handling its management
How to buy investment property step #1: find the right market
The downside to investing in out of state property is that real estate investors are not familiar with rental markets in different areas. There are different pieces of information that can help you better understand more about the rental market for your chosen area such as:
Laws and regulations
Local real estate laws and regulations can have a huge impact when investing in real estate. Look for a rental market that has landlord friendly local real estate laws when wanting to know how to buy investment property out of state. Like I mentioned before, this is especially important for Airbnb rentals since Airbnb laws are constantly changing. Avoid cities with strict short-term rental regulations if you want to invest in this type of investment strategy.
You need to know about tax-related laws for the rental market you want to buy out of state property in. Property taxes are a recurring expense when investing in real estate, and some areas tax heavier for it than others.
Occurring trends in a certain location can help identify if investing in that area is a good idea. You should look out for trends such as: is the population growing? Is the number of tenants increasing? Is the local economy performing well?
How to buy investment property out of state step #2: search for the right property
After you picked a rental market, the next step is to look for a property. Since you won’t be too familiar with the location, you need to find useful ways to make your search easier. Here are a few options:
A good way to keep your eyes opened for investment property out of state is through advertisements. You can find great real estate investment opportunities in local newspapers or magazines.
Real estate agents
This is an obvious way to find property listings in an area you are not familiar with. Real estate agents will help you find investment properties and make the process of how to buy investment property out of state so much easier.
The best source you could possibly find to make your property search easier is Mashvisor. Property listings for the best traditional and Airbnb properties are available on Mashvisor. Plus Mashvisor has different real estate investment tools for analyzing your property to help you make smart investment decisions.
Mashvisor provides every real estate investor with data that includes ROI metrics, property listing prices, and the optimal rental strategy for each property in your selected area. You will feel like you are investing in your hometown rather than out of state!
To learn more about our product, click here.
How to buy investment property step #3: handling property management
It’s very important to know how you are going to manage out of state properties. You have two options:
Professional property management
This is definitely the more obvious option to choose for out of state properties. The bad thing about professional property management is that it can be costly. But in the end, if your property is generating positive cash flow, it will be worth it!
This option is not that achievable for out of state investments. But if you don’t have that many properties and can easily visit, then self-managing the property could possibly work for you.
For more help on how to buy investment property out of state, click here to start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after!